Dr. Shahram Ravan has treated patients at Midway Hospital Medical Center for nearly 20 years. It wasn’t until the cardiologist became one of the hospital’s new owners and began examining its books recently that he was able to diagnose why the Los Angeles facility was bleeding red ink.
One clue popped out of a pharmacy bill. It showed the 200-bed hospital was paying $3.20 per pill for an ulcer medication. Ravan asked his pharmacy manager how a commonly prescribed drug could cost so much. Doctors were prescribing two ulcer medications, he was told, splitting the small hospital’s order in half and allowing the vendor to charge a premium for both.
Trying to get doctors to drop a drug to save money was the kind of idea that would have been dead on arrival had it come from a corporate bean counter. Not this time. Ravan and his fellow doctor-owners persuaded the staff to drop one of the hospital’s ulcer medications, but only because they believed the remaining drug was just as effective. The result: Midway now pays 32 cents a pill, saving nearly $3 a pop.
“The healthcare system is broken,” Ravan said. “Unless you get people in the trenches, the nurses and the doctors, involved in the solution, it’s not going to get fixed.”
Physician-owned hospitals are as rare as house calls these days. But their numbers are growing. Of California’s 353 hospitals, as many as two dozen are owned by groups involving doctors, double the number of a few years ago.
Last fall Ravan, 53, and six other physicians ponied up a down payment, got a bank loan and bought Midway for $12 million. It was one of 28 hospitals that financially struggling Tenet Healthcare Corp. put on the block last year. Midway was no cash cow: The hospital lost $9 million in the last seven months of 2003.
The new owners, who include two surgeons, an orthopedist, a pulmonologist, a gynecologist who is good with computers and a dentist with an MBA, have a common goal: balance good medicine with good business. They want to make a reasonable return on their investment and plow money back into Midway in a way its corporate parent hadn’t for years. After all, the operating margin for California’s 100 for-profit hospitals in 2003 averaged 11.15%.
Still, it’s a risky business. The doctors’ plunge into hospital management comes at a time when a third of the nation’s hospitals are losing money. Soaring medical costs, a rising number of uninsured patients and a byzantine billing and reimbursement system have created a crisis that has forced many hospitals to close unprofitable emergency rooms or shut down altogether.
Local healthcare advocate Lark Galloway-Gilliam is concerned about doctors buying hospitals at a time when even large chain operators are reeling.
“These are trying times,” said Galloway-Gilliam, executive director of Community Health Councils, a Los Angeles-based nonprofit. “The real question is, ‘Do these people have the staying power, the resources and the knowledge to run these hospitals?’ ”
Others are concerned about the potential for physicians’ financial stakes to conflict with what is in the best interest of their patients.
What’s driving doctors to buy hospitals is a desire to have “more control over the quality of patient care, and right now they feel like they have none,” said Jeremy Hogue, founder of Sovereign Healthcare, a Newport Beach hospital investment company. His firm is helping a group of physicians buy ailing Brea Community Hospital in Orange County. It is also working with doctor groups in California and Arizona to acquire other hospitals.
Doctor-run hospitals once were common. Many celebrated medical institutions, including the Mayo Clinic, were founded by physicians. In recent decades, however, doctors have been pushed to the sidelines as not-for-profit operators and for-profit corporations transformed the healthcare landscape by piecing together regional and multi-state chains. Bigger wasn’t always better, though.
HCA Inc., with 190 hospitals in 23 states, struggled for years before agreeing in 2003 to pay $631 million to settle whistle-blower allegations of false Medicare and Medicaid claims and kickbacks to doctors. Now Tenet, the nation’s second-largest hospital chain, faces numerous government investigations over allegations of business and medical practice improprieties. As its finances plunged into disarray, Tenet decided to unload nearly one-third of its hospitals, many of them unprofitable or struggling, such as Midway.
Tenet was set to turn over Midway to its new owners Dec. 1. A few minutes before midnight Nov. 30, Ravan and a couple of partners went to the hospital, ordered enough pizza to feed the nurses, technicians and others on the graveyard shift, and made the rounds. They were greeted with cheers.
“They were coming to our rescue,” said Marguerite Rabb, a nurse who has been at Midway since 1974.
The doctors took a big financial risk, said Ron Stern, Midway’s chief executive under Tenet who now takes orders from Ravan’s team. At least three other hospital operators considered bidding on Midway but ultimately passed. Many of Midway’s 600 employees worried that a new owner would turn it into a nursing home or a rehabilitation center.
“This hospital was in jeopardy,” Stern said. “Now we feel a ray of hope, an opportunity.”
It’s too soon to know if the doctors will save Midway, although their prognosis is optimistic. The stakes are high. Midway plays a vital role in Los Angeles’ fraying critical-care network. Its emergency room treats about 2,000 patients a month and handles overflow traffic from the area’s major medical centers, Cedars-Sinai and UCLA.
Not unlike Tenet, the doctors’ business plan includes positioning Midway as a more convenient, less crowded and less expensive alternative to large medical centers.
In addition, the doctors are investing in new services to improve care and also make money, including a pioneering spinal surgery institute. Another new offering is a cutting-edge cancer weapon called microwave ablation, in which a probe inserted through the patient’s skin to the site of the cancer transmits microwave energy, destroying the tumor. Midway also is expanding profitable joint replacement, sports injury and weight-loss surgery programs.
Ravan’s team wants to increase the emergency room’s capacity for critical patients by diverting noncritical walk-ins to a new urgent care center, at an expected cost of about $1 million. The doctors expect to return to operating in the black by the end of the year.
Their ownership recalls Midway’s founding by a pair of physicians in 1947. In its heyday, the hospital catered to Hollywood celebrities. The founders’ heirs sold Midway to the first in a series of corporate owners in the early 1980s. Various physicians and nurses began to leave, discouraged by corporate management they viewed as out of touch and by a lack of investment. Patients went elsewhere too. At its lowest point in the 1990s, Midway was filling only about 50 beds.
“The only time this hospital was good is when it was doctor-owned,” said Miriam Kunkis, 84, who raised her family within walking distance and whose first visit to Midway was to accompany her young daughter for eye surgery.
“It was marvelous,” she recalled. “They were great, and it was clean. The floors were sparkling.”
Herman and Isabel Colburn stopped going to Midway a few years ago because they “didn’t feel like they got great care,” said their daughter, Marlene Reifel.
The elderly couple have been Ravan’s patients for 20 years and recently decided to give the hospital another try. Reifel took her 87-year-old mother to Midway’s emergency room after she fell recently and was surprised to be driving her home in less than three hours.
Reifel, whose 94-year-old father was admitted to the hospital this month with pneumonia, has been impressed by the staff’s attentiveness. His dinner comes when he is hungry, and when Reifel stayed over one night, a couple of nurses brought in a pullout sofa.
“I notice a big difference,” Reifel said. “They are right on top of everything. I think that has a lot to do with Dr. Ravan being in charge. I think he’s making sure they are treating patients very well.”
Ravan puts in long days. After morning rounds at Cedars-Sinai, where he sees many patients, he sweeps into his Beverly Hills office around 9. His suite, two blocks from Rodeo Drive, is a world away from where his father saw patients in Tehran, at an office at the front of a two-bedroom apartment where he raised five children.
In some ways, though, Ravan’s practice is similar. His father accepted chickens and milk from patients who had little else. And he passed on a lesson to his son: A good doctor never turns a patient away.
So, even as he is trying to turn Midway around, Ravan wants to keep the hospital open to patients who are often turned away by others. One man came to him recently in need of a chest X-ray to follow up on a lung operation. He had no insurance and wasn’t poor enough to qualify for Medi-Cal. Nor could he pay the full $1,200 charge. Ravan got the man a cash discount that made the X-ray affordable.
On Ravan’s ornate wooden desk, bright yellow folders fat with medical records are stacked 10 deep. He begins exchanging e-mails with Midway administrators, with whom he keeps close tabs on the operations and finances. These days, no bill is too small to escape his attention. “We are looking at everything,” he said. “These are the strategies of survival.”
Among the surprises for Ravan was an antibiotic that costs thousands of dollars per treatment course, far more than others that work as well. “Doctors have no clue of the costs of this stuff,” he said. “I looked at some of these things as I paid them and I was flabbergasted.”
Many corporate-owned hospitals try to keep doctors happy by not interfering with their choice of prescriptions and medical devices. Not only do Ravan and his owner-colleagues have greater influence here, but they are poring over individual bills with greater scrutiny than previous owners.
This is all paying off, leading to reductions in spending on everything from cleaning supplies to expensive medical devices. For example, Midway discovered that it was paying thousands of dollars more for medical implants than it was getting paid for the operations in which they were used. It got a price break on the implants by suggesting to the vendor that it could shop around.
The hospital also switched brands of the soap that doctors and nurses scrub with between patients, saving Midway as much as $30,000 a year on the antiseptic it buys by the gallon. Switching parking lot vendors saved an additional $3,000 a month.
So far, about 50 of the 600 doctors with admitting privileges at Midway have joined the original ownership group as investors. Now that they have a direct stake in the hospital’s success, many are willing to work on weekends, something doctors had been loath to do in the past.
As a result, more patients are discharged over the weekend, instead of waiting until Monday for doctors to administer tests. “We can get the patients home earlier,” Ravan said. “It saves the hospital a lot of money, and it saves the patients a lot of money. That’s been a major change.”
By noon, after seeing eight patients in his office, Ravan pulls up to Midway, a cluster of three mid-rise buildings that are lost behind overgrown trees along San Vicente Boulevard near Olympic Boulevard.
Rushing in for a quality improvement committee meeting, Ravan pulls two fuchsia orchids out of his BMW sedan. “My wife does these,” he said, exchanging them for a bloomless pair on a desk in the hospital lobby, where the volunteer greeter sits, watching him with an approving smile.
The flowers are a small sign of changes at Midway. Before, a visitor’s first impression was the lobby’s dingy carpet. Now, visitors are greeted by faux tile that sparkles.
The doctors also have converted several double rooms into singles. For $20,000, they transformed an office outside the operating rooms into a lounge with a TV and plump sofas and chairs, where relatives wait to talk to doctors after surgery.
Patient charts -- once organized haphazardly -- now are assembled uniformly throughout Midway. Color coding makes it easy for doctors to find needed information, such as radiology reports (gray tab), dietitian’s notes (green), nursing record (pink) and doctors’ orders (orange).
Ravan crisscrosses the hospital, attending meetings and visiting patients. Rounds have always provided Ravan with some of his best intelligence on Midway. The difference now is he can act on that information, and the nurses know it.
Recently, on his way home at 10 p.m. Ravan noticed a mess in the elevator. A couple of months ago, he said, “I might have just walked out, thinking ... it’s not my problem, and get frustrated because they are not taking care of it.”
Instead of going home to his wife and three school-age children, Ravan tracked down the janitor and got the mess cleaned up.
“We aren’t so much owning the hospital,” he said, “as we are owning up to it.”